A key reason for the inability of claimants to successfully challenge programme conditionality and the resulting austerity inherent in euro-area rescue deals, has been the barrier between the actions of EU institutions and the international bodies that carried out the bailouts. The recent decision of the CJEU in Ledra Advertising breaks down that barrier with unpredictable consequences.

During the height of the euro debt crisis in 2010, the European Council took a decision to establish a crisis response mechanism with the financial firepower to rescue euro member states unable to raise finance in markets. This mechanism, operating as an intergovernmental organisation under public international law, was christened European Stability Mechanism (ESM) and is the predominant crisis resolution mechanism for countries of the euro area. The crucial point about the operation of ESM is that it is only authorised to make use of lending instruments subject to appropriate conditionality. The fourth intervention of the ESM (after Ireland, Greece and Portugal) in the euro debt crisis was in Cyprus in 2013. Cyprus faced a crisis in its banking sector, with its two biggest banks considered to be insolvent. A package of financial assistance of up to €10 billion was agreed by a MoU in April 2013, with the ESM financing up to €9 billion and the IMF around €1 billion. In order to receive the loans, Cyprus needed (amongst other measures) to restore the soundness of its banking sector by thoroughly restructuring and downsizing financial institutions. What this meant for the banks was that the country’s second-biggest bank, Laiki, was wound down, and Cyprus’ biggest bank, the Bank of Cyprus, was restructured by wiping out shareholders and bailing in bondholders. Uninsured depositors incurred significant losses ...